Robert Doll, chief equity strategist at Nuveen Asset Management, urged advisors to shift their focus from equities that pay high dividends to those that can grow their payout appreciably.
Speaking at IMCA's annual conference in Chicago today, Doll said that many dividend-paying stocks have performed well in recent years because they have "bond-like characteristics." Those characteristics may cease to make them attractive in a rising interest rate environment going forward.
Doll noted that two-thirds of dividend-paying stocks grow their payouts to investors at an annual rate of 5 percent or less. In contrast, he has a dividend portfolio in which the companies are increasing payouts at a rate of 21 percent a year.
Investors who shift their portfolios from high-dividend stocks to those growing their dividends briskly may accept less income in return. But they are likely to earn a higher total return through greater stock price appreciation of companies with the ability to raise payouts substantially. Overall, Doll predicted that dividends would grow 10 percent over the next few years as all companies increase payouts, while earnings would only rise at a 5 percent annual clip.
Doll was bearish on bonds, predicting that many people in the room may never see another 1.48 percent yield on 10-year Treasury bonds in their lifetimes. Accordingly, he told advisors most clients would benefit from increasing their allocation to equities by 10 percent to 20 percent.
The 30-year bull market in bonds is over, Doll said. Within the bond market, Doll favors two asset classes—bonds with a variable-rate component and high-yield municipal bonds with big spreads vs. investment-grade munis. "Thank you, Detroit, California and Chicago," he said.